If you are a business owner in California, you may be wondering whether to hire employees or independent contractors. This is a difficult decision, and there are many things to consider before making a decision. In this blog post, we will discuss 10 of the most important factors to consider when making this decision. Business owners often wonder if they can get away with classifying workers as independent contractors.
The primary benefit of doing this is that the business would not have to pay employment taxes or provide employment benefits, such as health insurance and vacation days. However, there are many employment laws in California that must be followed when hiring employees; these laws do not apply to independent contractors. If you hire someone who should be classified as an employee but instead classify them as an independent contractor, you may be subject to employment law claims for unpaid wages and other damages!
This blog post will help you understand what factors are most important for making this decision so that your business does not lose money due to employment law claims later on down the line. Workers who are classified incorrectly can bring legal action against your business for unpaid wages and other damages!
You can also subject yourself to a costly and invasive audit by the IRS, CA EDD, and Labor Commissioner.
Here are some of the risks of misclassification:
- employee class action lawsuit
- IRS Audit
- CA EDD Audit
- Labor Commissioner Audit
- penalties and fines for back pay, overtime, missed meal breaks, spanning years and per violation
Though many business owners ask their CPA or Financial advisor about adding workers as independent contractors or employees, classification is a legal question because it is answered by legal considerations. Consult a qualified employment attorney in your area.
The first factor to consider is the nature of the work. Generally, if the worker’s job duties are integral to your business, they should be classified as an employee. For example, a retail store would likely need employees to do things like greet customers, ring up sales, and stock shelves. However, if you hire someone to do a one-time project or something that can be easily delegated to another individual, they may be considered an independent contractor.
Another important factor is how much control you have over the worker. If you dictate when and how the work is done, this suggests that the worker is an employee. On the other hand, if you give the worker freedom to complete the task in their own way, then this suggests that they are an independent contractor.
The third factor is the permanency of employment. If you hire someone for a long period of time and consider them part of your business, then you should classify them as an employee. However, if the employment arrangement is short-term or temporary in nature, then it may be best to classify the worker as an independent contractor instead!
The fourth factor involves training; employees will generally receive some type of training from their employer while contractors do not need this type of instruction because they already know how to perform their job duties properly. This can also play into whether there’s potential mutual investment between both parties involved with hiring/having employment arrangements based on certain expectations such as having dedicated work hours mutually agreed to.
The fifth factor is whether the worker is paid a salary or an hourly wage. If they are paid a salary, this suggests that they are an employee. However, if they are paid by the hour, this suggests that they are an independent contractor.
Sixth, you should consider how integral the worker’s services are to your business. If their services are essential to your operations, then you should classify them as employees. On the other hand, if their services can be easily replaced, then they may be considered independent contractors.
Seventh, another important factor is whether the worker has his or her own business and performs work for several different clients simultaneously. This suggests that the worker is an independent contractor rather than an employee because employment arrangements typically involve just one company.
The eighth factor is the worker’s investment in equipment or facilities used during employment; employees generally do not have much of an investment while contractors might supply some tools themselves as part of their employment arrangements with other entities and businesses.
Ninth, it’s important to consider whether there are opportunities for profit or loss related to employment relationships; this indicates that a person may be classified as either contractor vs employee based on certain factors such as their amount invested from personal funds into business ventures along with any specific risks associated (e.g., financial risk).
Tenth, you should also take into account how long each employment arrangement lasts – if they last less than six than they are considered employment arrangements.
The last factor to consider is whether the worker has employment agreements with other businesses or individuals at any given time; this indicates that a person may be classified as either contractor vs employee based on certain factors such as their amount invested from personal funds into business ventures along with any specific risks associated (e.g., financial risk). If they do have employment agreements, then it’s more likely they would be considered an independent contractor than if they didn’t have employment contracts in place for those types of relationships.
No matter what, it is not worth it to copy paste, download, google search your way through hiring workers and risking losing everything you’ve worked for. Consult a qualified employment attorney in your area who works to protect business owners and have peace of mind knowing you’re protected.
Educational post only-this is not legal advice and should not be relied upon. No attorney client relationship and intended for CA audiences only.
San Gabriel Valley law is the human resources law firm protecting CA business owners.